OJSC NOVOLIPETSK STEEL INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Transcription

1 OJSC NOVOLIPETSK STEEL INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA AS AT MARCH 31, 2014 AND DECEMBER 31, 2013 AND FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013 (UNAUDITED)

2 Interim condensed consolidated financial statements CONTENTS Report of independent auditors 3 Interim condensed consolidated balance sheets 4 Interim condensed consolidated statements of income 5 Interim condensed consolidated statements of comprehensive income 6 Interim condensed consolidated statements of stockholders equity 6 Interim condensed consolidated statements of cash flows

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4 Interim condensed consolidated balance sheets as at and (unaudited) ASSETS Note Current assets Cash and cash equivalents 2 829, ,992 Short-term investments 5 753, ,981 Accounts receivable and advances given, net 3 1,543,871 1,437,697 Inventories, net 4 1,731,229 2,123,755 Other current assets 17,300 7,578 Deferred income tax assets 89,775 77,864 4,965,598 5,101,867 Non-current assets Long-term investments 5 443, ,074 Property, plant and equipment, net 6 9,161,990 10,002,996 Intangible assets, net 109, ,958 Goodwill 428, ,409 Deferred income tax assets 100,628 58,585 Other non-current assets 38,918 40,192 10,282,949 11,182,214 Total assets 15,248,547 16,284,081 LIABILITIES AND STOCKHOLDERS EQUITY Current liabilities Accounts payable and other liabilities 7 1,067,856 1,175,709 Short-term borrowings 8 1,141,305 1,119,286 Current income tax liability 32,671 21,553 2,241,832 2,316,548 Non-current liabilities Deferred income tax liability 607, ,250 Long-term borrowings 8 2,743,367 3,038,041 Other long-term liabilities 52,108 55,433 3,403,471 3,692,724 Total liabilities 5,645,303 6,009,272 Commitments and contingencies Stockholders equity NLMK stockholders equity Common stock, 1 Russian ruble par value 5,993,227,240 shares issued and outstanding at and 221, ,173 Statutory reserve 10,267 10,267 Additional paid-in capital 256, ,922 Accumulated other comprehensive loss (2,739,233) (1,897,100) Retained earnings 11,829,375 11,655,490 9,578,504 10,246,752 Non-controlling interest 24,740 28,057 Total stockholders equity 9,603,244 10,274,809 Total liabilities and stockholders equity 15,248,547 16,284,081 The accompanying notes constitute an integral part of these interim condensed consolidated financial statements. 4

5 Interim condensed consolidated statements of income Note For the three months ended For the three months ended March 31, 2013 Revenue 12 2,637,829 2,855,822 Cost of sales Production cost (1,824,844) (2,124,755) Depreciation and amortization (199,214) (207,249) (2,024,058) (2,332,004) Gross profit 613, ,818 General and administrative expenses (92,474) (119,625) Selling expenses (212,106) (257,166) Taxes other than income tax (40,238) (36,194) Operating income 268, ,833 Loss on disposals of property, plant and equipment (477) (1,517) Losses on investments, net (249) (735) Interest income 6,927 10,040 Interest expense (32,145) (30,768) Foreign currency exchange gain / (loss), net 46,215 (26,656) Other expenses, net (6,681) (8,291) Income before income tax 282,543 52,906 Income tax expense (65,176) (17,579) Income, net of income tax 217,367 35,327 Equity in net (losses) / earnings of associates (44,494) 77 Net income 172,873 35,404 Add: Net loss attributable to the non-controlling interest 1,012 2,494 Net income attributable to NLMK stockholders 173,885 37,898 Earnings per share basic and diluted: Net earnings attributable to NLMK stockholders per share (US dollars) Weighted-average shares outstanding, basic and diluted (in thousands) 9 5,993,227 5,993,227 The accompanying notes constitute an integral part of these consolidated financial statements. 5

6 Interim condensed consolidated statements of comprehensive income and statements of stockholders equity Interim condensed consolidated statements of comprehensive income Net income Cumulative translation adjustment Comprehensive loss Non-controlling interest Comprehensive loss attributable to NLMK stockholders For the three months ended March 31, ,404 (227,238) (191,834) (3,015) (188,819) For the three months ended 172,873 (844,438) (671,565) (3,317) (668,248) Interim condensed consolidated statements of stockholders equity Common stock Statutory reserve NLMK stockholders Additional paid-in capital Accumulated other comprehensive loss Retained earnings Noncontrolling interest Total stockholders equity Balance at December 31, ,173 10, ,391 (997,035) 11,582,368 (32,874) 11,090,290 Net income / (loss) ,898 (2,494) 35,404 Cumulative translation adjustment (226,717) - (521) (227,238) Change of non-controlling interests in existing subsidiaries (49,469) ,681 (6,788) Balance at March 31, ,173 10, ,922 (1,223,752) 11,620,266 6,792 10,891,668 Balance at 221,173 10, ,922 (1,897,100) 11,655,490 28,057 10,274,809 Net income / (loss) ,885 (1,012) 172,873 Cumulative translation adjustment (842,133) - (2,305) (844,438) Balance at 221,173 10, ,922 (2,739,233) 11,829,375 24,740 9,603,244 The accompanying notes constitute an integral part of these consolidated financial statements. 6

7 Interim condensed consolidated statements of cash flows Note For the three months ended For the three months ended March 31, 2013 CASH FLOWS FROM OPERATING ACTIVITIES Net income 172,873 35,404 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 199, ,249 Loss on disposals of property, plant and equipment 477 1,517 Losses on investments, net Interest income (6,927) - Interest expense 32,145 30,768 Equity in net losses / (earnings) of associates 44,494 (77) Deferred income tax benefit (8,041) (39,903) Losses / (gains) on derivatives 6,035 (6,478) Other (6,019) 49,051 Changes in operating assets and liabilities Increase in accounts receivable (227,756) (102,199) Decrease in inventories 229,868 74,726 (Increase) / decrease in other current assets (10,566) 4,762 Decrease in accounts payable and other liabilities (2,903) (16,520) Increase in current income tax payable 13,173 21,727 Cash provided by operating activities 436, ,762 Interest received 5,388 - Interest paid (40,499) - Net cash provided by operating activities 401, ,762 CASH FLOWS FROM INVESTING ACTIVITIES Purchases and construction of property, plant and equipment (130,664) (153,753) Proceeds from sale of property, plant and equipment 3,563 1,424 (Purchases) / proceeds from sale of investments and loans given, net (69,331) 8,557 Placement of bank deposits, net (183,318) (169,884) Acquisition of additional stake in existing subsidiary 10 - (9,609) Net cash used in investing activities (379,750) (323,265) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings and notes payable 1, ,323 Repayment of borrowings and notes payable (148,632) (553,061) Capital lease payments (5,750) (7,021) Dividends to shareholders (16) (83) Net cash (used in) / provided by financing activities (152,426) 292,158 Net (decrease) / increase in cash and cash equivalents (130,971) 229,655 Effect of exchange rate changes on cash and cash equivalents (9,087) 38,928 Cash and cash equivalents at the beginning of the year 2 969, ,247 Cash and cash equivalents at the end of the period 2 829,934 1,219,830 Supplemental disclosures of cash flow information: Placements of bank deposits (400,101) (281,285) Withdrawals of bank deposits 216, ,401 The accompanying notes constitute an integral part of these consolidated financial statements. 7

8 1 BASIS OF INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS PREPARATION These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Open Joint Stock Company Novolipetsk Steel (the Parent Company, or NLMK ) and its subsidiaries (together the Group ) as at and for the year ended. The condensed consolidated balance sheet information has been derived from the audited consolidated financial statements, however, since it is presented on a condensed basis it does not include all disclosures required by accounting principles generally accepted in the United States of America for annual consolidated financial statements. In the opinion of the Group s management, the information furnished herein reflects all known accruals and adjustments necessary for a fair statement of the results for the periods reported herein. All such adjustments are of a normal recurring nature. The financial results of the periods reported herein are not necessarily indicative of future financial results. Functional and reporting currency Functional currency of the majority of the Group entities is considered to be the Russian ruble. The functional currency of the foreign subsidiaries is their local currency. The accompanying interim condensed consolidated financial statements have been prepared using the US dollar as the Group s reporting currency, utilizing period-end exchange rates for assets and liabilities, corresponding period quarterly weighted average exchange rates for interim condensed consolidated statement of income accounts and historic rates for equity accounts. The Central Bank of the Russian Federation s Russian ruble to US dollar closing rates of exchange as of the reporting dates and the period weighted average exchange rates for corresponding reporting periods are indicated below For the 1 st quarter March December Recent accounting pronouncements In February 2013, the FASB issued an amendment to existing guidance regarding the reporting of amounts reclassified out of accumulated other comprehensive income. The amendment requires an entity to present information about reclassification adjustments from accumulated other comprehensive income in its annual financial statements in a single note or on the face of the financial statements. The amendment was effective prospectively for reporting periods beginning after December 15, As substantially all of the information that this amendment requires is already disclosed elsewhere in the consolidated financial statements, it did not have an impact on these interim condensed consolidated financial statements. 8

9 2 CASH AND CASH EQUIVALENTS Cash Russian rubles 94,503 70,834 Cash US dollars 230, ,113 Cash other currencies 137, ,551 Deposits Russian rubles 219, ,851 Deposits US dollars 132, ,778 Deposits Euros 14,463 5,732 Deposits other currencies 415 1,937 Other cash equivalents , ,992 3 ACCOUNTS RECEIVABLE AND ADVANCES GIVEN Trade accounts receivable 1,068, ,627 Advances given to suppliers 95,708 66,813 VAT and other taxes receivable 389, ,173 Accounts receivable from employees 3,012 3,346 Other accounts receivable 122, ,902 1,679,426 1,583,861 Allowance for doubtful debts (135,555) (146,164) 1,543,871 1,437,697 and, accounts receivable of $158,799 and $141,666, respectively, served as collateral for certain borrowings (Note 8). 4 INVENTORIES Raw materials 720, ,701 Work in process 581, ,589 Finished goods and goods for resale 491, ,203 1,793,347 2,191,493 Provision for obsolescence (62,118) (67,738) 1,731,229 2,123,755 and, inventories of $394,397 and $310,538, respectively, served as collateral for certain borrowings (Note 8). 9

10 5 INVESTMENTS Balance sheet classification of investments: Short-term investments and current portion of long-term investments Loans to related parties (Note 14(b)) 177, ,565 Bank deposits and other investments 576, , , ,981 Long-term investments Loans to related parties (Note 14(b)) 77,371 78,030 Investments in associates 366, ,149 Bank deposits and other investments 93 3, , ,074 Total investments 1,196, ,055 Investments in associates Ownership Ownership NLMK Belgium Holdings S.A % 79.50% 366, ,799 TBEA & NLMK (Shenyang) Metal Product Co., Ltd % 50.00% 8,475 6, , ,149 6 PROPERTY, PLANT AND EQUIPMENT Land 198, ,769 Mineral rights 488, ,190 Buildings 2,346,171 2,532,082 Land and buildings improvements 1,910,350 2,079,292 Machinery and equipment 8,386,821 8,790,467 Vehicles 329, ,098 Construction in progress and advances for construction and acquisition of property, plant and equipment 1,774,612 2,089,919 Leased assets 70,597 76,952 Other 97, ,561 15,601,589 16,784,330 Accumulated depreciation (6,439,599) (6,781,334) 9,161,990 10,002,996 The amount of interest capitalized was $20,161 and $32,769 for the three months ended and March 31, 2013, respectively. Management has analyzed the performance of key reporting units in the first quarter of 2014 and believes that no changes to the estimates made as of regarding impairment of fixed assets and goodwill are required. 10

11 7 ACCOUNTS PAYABLE AND OTHER LIABILITIES Trade accounts payable 489, ,617 Advances received 111, ,313 Taxes payable other than income tax 145, ,006 Accounts payable and accrued liabilities to employees 197, ,143 Dividends payable 1,275 1,407 Short-term capital lease liability 13,344 17,395 Other accounts payable 109, ,828 1,067,856 1,175,709 8 SHORT-TERM AND LONG-TERM BORROWINGS Parent Company Bonds, RUR denominated, with interest rates from 8.00% to 8.95% per annum, mature or with put option in ,287,771 1,400,660 Loans, EUR denominated, with interest rates from EURIBOR (6 m) +1.5% to EURIBOR (3 m) +3.5% per annum, mature , ,928 Bonds, USD denominated, with interest rates from 4.45% to 4.95% per annum, mature ,304,497 1,319,585 Companies of the Foreign rolled products segment Loans, EUR denominated, with interest rates from EURIBOR +0.9% to EURIBOR +2.0% per annum, mature , ,822 Loans, USD denominated, with interest rates LIBOR % and PRIME % per annum, mature , ,667 Other companies Loans, USD denominated, with interest rates from LIBOR +1.2% to LIBOR +2.5% per annum, mature , ,331 Loans, EUR denominated, with interest rates from EURIBOR (6 m) +0.9% to EURIBOR (6 m) +1.3% per annum, mature , ,685 Loans, RUR denominated, with interest rates 8.25% and 10% per annum, mature ,338 38,406 Other borrowings 3,942 4,243 3,884,672 4,157,327 Less: short-term loans and current maturities of long-term loans (1,141,305) (1,119,286) Long-term borrowings 2,743,367 3,038,041 The Group s long-term borrowings as at mature between 2 to 8 years. 11

12 8 SHORT-TERM AND LONG-TERM BORROWINGS (continued) Major terms of loan agreements Certain of the loan agreements contain debt covenants that impose restrictions on the purposes for which the loans may be utilized, covenants with respect to disposal of assets, incurrence of additional liabilities, issuance of loans or guarantees, obligations in respect of any future reorganizations procedures or bankruptcy of borrowers, and also require that borrowers maintain pledged assets to their current value and conditions. In addition, these agreements contain covenants with respect to compliance with certain financial ratios, clauses in relation to performance of the borrowers, including cross default provisions, as well as legal claims in excess of certain amount, where reasonable expectations of a negative outcome exist, and covenants triggered by any failure of the borrower to fulfill contractual obligations. The Group companies are in compliance with all debt covenants as at. 9 EARNINGS PER SHARE For the three months ended For the three months ended March 31, 2013 Net income 173,885 37,898 Weighted average number of shares 5,993,227,240 5,993,227,240 Basic and diluted net earnings per share (US dollars) Basic net income per share of common stock is calculated by dividing net income by the weighted average number of shares of common stock outstanding during the reporting period. The Parent Company does not have potentially dilutive shares outstanding. 10 CHANGE IN NON-CONTROLLING INTERESTS IN COMPANIES OF LONG PRODUCT SEGMENT In February 2013, the Parent Company acquired through a public auction for $9,609 a stake of 35.59% in OJSC NSMMZ. As a result of this transaction, there was a decrease in the additional paid-in capital by $49,469 with a corresponding change of non-controlling interest. 11 DERIVATIVE FINANCIAL ASSETS AND LIABILITIES The Group holds or purchases derivative financial instruments for purposes other than trading to mitigate foreign currency exchange rate risk. Forward contracts were short-term with maturity dates in January, February and November In 2012, the Group entered into Russian ruble / US dollar cross-currency interest rate swap agreements in conjunction with Russian ruble denominated bonds issued by the Group. As a result, the Group pays US dollars at fixed rates varying from 3.11% to 3.15% per annum and receives Russian rubles at a fixed rate of 8.95% per annum. Maturity of the swaps is linked to the Russian ruble denominated bonds redemption, maturing on November In accordance with ASC No. 820, the fair value of foreign currency derivatives is determined using Level 2 inputs. The inputs used include quoted prices for similar assets or liabilities in an active market. Fair value of forwards is determined as the sum of the differences between the market forward rate in the settlement month prevailing at and the appropriate contract settlement rate, multiplied by discounted notional amounts of the corresponding contracts. Fair value of swaps is determined as the sum of the discounted contractual cash flows in Russian rubles and US dollars as at. 12

13 11 DERIVATIVE FINANCIAL ASSETS AND LIABILITIES (continued) During the three months ended and March 31, 2013 gains from forward exchange contracts amounted to nil and $721, respectively. These gains and losses were included in Foreign currency exchange gain / (loss), net line in the interim condensed consolidated statements of income. The table below summarizes the contractual amounts and positive fair values of the Group s unrealized crosscurrency interest rate swap agreements in US dollars. Notional amount Fair value Notional amount Fair value US dollars , The table below summarizes the contractual amounts and negative fair values of the Group s unrealized crosscurrency interest rate swap agreements in US dollars. Notional amount Fair value Notional amount Fair value US dollars 76,357 (5,911) - - During the three months ended and March 31, 2013 losses from cross-currency interest rate swap agreements amounted to $(6,571) and $(775), respectively, and were included in Foreign currency exchange gain / (loss), net line in the interim condensed consolidated statements of income. The Group has recognized a liability in respect of the options related to Societe Wallonne de Gestion et de Participations S.A. (SOGEPA) s 20.5% stake in NLMK Belgium Holdings S.A., based on their fair value in the amount of $30.0 million as at. Respective liability was included in other long-term liabilities. 12 SEGMENT INFORMATION The Group has four reportable business segments: steel, foreign rolled products, long products and mining. These segments are combinations of subsidiaries, have separate management teams and offer different products and services. The above four segments meet the criteria for reportable segments. Subsidiaries are consolidated by the segment to which they belong based on their products and management. Revenue from segments that does not exceed the quantitative thresholds is primarily attributable to two operating segments of the Group. Those segments include insurance and other services. None of these segments has met any of the quantitative thresholds for determining a reportable segment. The investments in equity method investee and equity in net earnings / (losses) of associates are included in the steel and foreign rolled products segments. The Group s management determines intersegmental sales and transfers, as if the sales or transfers were to third parties. The Group s management evaluates performance of the segments based on segment revenues, gross profit, operating income and income, net of income tax. Segmental information for the three months ended and their assets as at is as follows: Intersegmental Steel Foreign rolled products Long products Mining All other operations Totals and balances Consolidated Revenue from external customers 1,742, , ,078 87, ,637,829-2,637,829 Intersegment revenue 295,909-57, , ,725 (581,725) - Gross profit / (loss) 406,036 31,570 20, ,717 (243) 683,927 (70,156) 613,771 Operating income / (loss) 128,107 2,796 (21,632) 192,811 (817) 301,265 (32,312) 268,953 Income / (loss), net of income tax 101,170 (6,515) (57,508) 204,339 (379) 241,107 (23,740) 217,367 Segment assets, including goodwill 12,193,679 1,969,227 2,549,899 2,401, ,548 19,229,287 (3,980,740) 15,248,547 13

14 12 SEGMENT INFORMATION (continued) Segmental information for the three months ended March 31, 2013 and their assets as at is as follows: Intersegmental Steel Foreign rolled products Long products Mining All other operations Totals and balances Consolidated Revenue from external customers 1,659, , ,444 91, ,855,822-2,855,822 Intersegment revenue 346, , , ,386 (650,386) - Gross profit 259,502 (6,382) 46, , ,409 (7,591) 523,818 Operating income / (loss) (36,305) (74,008) (1,748) 196,867 (381) 84,425 26, ,833 Income / (loss), net of income tax (38,801) (91,358) (35,852) 163, (2,007) 37,334 35,327 Segment assets, including goodwill 13,046,727 1,925,216 2,781,821 2,374,010 62,838 20,190,612 (3,906,531) 16,284, RISKS AND UNCERTAINTIES (a) Operating environment of the Group The Russian Federation s economy continues to display some characteristics of an emerging market. These characteristics include, but are not limited to, the existence of a currency that in practice is not freely convertible in most countries outside the Russian Federation and relatively high inflation. The legal, tax and regulatory frameworks continue to develop and are subject to varying interpretations. The future economic direction of the Russian Federation is largely dependent upon the effectiveness of economic, financial and monetary measures undertaken by the Government, together with tax, legal, regulatory and political developments. The detailed information for the operating environment of the Group, including recent relevant political developments, is presented in the consolidated financial statements of the Group as at and for the year ended. Management believes it is taking all the necessary measures to support the sustainability and growth of the Group s business. The major financial risks inherent to the Group s operations are those related to market risk, credit risk and liquidity risk. The objectives of the financial risk management function are to establish risk limits, and then ensure that exposure to risks stays within these limits. (b) Market risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises of three types of risk: interest rate risk, foreign currency risk and commodity price risk. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The risk of changes in market interest rates relates primarily to the Group s long-term debt obligations with floating interest rates. To manage this risk the Group analyzes interest rate risks on a regular basis. The Group reduces its exposure to this risk by having a balanced portfolio of fixed and variable rate loans. 14

15 13 RISKS AND UNCERTAINTIES (continued) Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The export-oriented companies of the Group are exposed to foreign currency risks. To minimize foreign currency risks the export program is designed taking into account potential (forecast) major foreign currencies exchange fluctuations. The Group diversifies its revenues in different currencies. In its export contracts the Group controls the balance of currency positions: payments in foreign currency are settled with export revenues in the same currency. At the same time standard hedging instruments to manage foreign currency risk might be used. Commodity price risk Commodity price risk is a risk arising from possible changes in price of raw materials and metal products, and their impact on the Group s future performance and the Group s operational results. The Group minimizes its risks, related to production distribution, by having a wide range of geographical zones for sales, which allows the Group to respond quickly to changes in the situation on one or more sales markets on the basis of an analysis of the existing and prospective markets. The Group s sales outside the Russian Federation in monetary terms for the three months ended and March 31, 2013 were 61% and 63% of the total sales, respectively. One of the commodity price risk management instruments is vertical integration. A high degree of vertical integration allows cost control and effective management of the entire process of production: from mining of raw materials and generation of electric and heat energy to production, processing and distribution of metal products. (c) Credit risk Credit risk is the risk when counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily for trade receivables) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments. Customer credit risk is managed by each business unit subject to the Group s established policy, procedures and control relating to customer credit risk management. The Group structures the levels of credit risk it undertakes by assessing the degree of risk for each counterparty or groups of parties. Such risks are monitored on a revolving basis and are subject to a quarterly, or more frequent, review. The Group s management reviews ageing analysis of outstanding trade receivables and follows up on past due balances. (d) Liquidity risk Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Group is exposed to daily calls on its available cash resources. The Group monitors its risk to a shortage of funds using a regular cash flow forecast. The Group s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, debentures, finance leases. To provide for sufficient cash balances required for settlement of its obligations in time the Group uses detailed budgeting and cash flow forecasting instruments. 15

16 13 RISKS AND UNCERTAINTIES (continued) (e) Insurance To minimize risks the Group concludes insurance policies which cover property damages and business interruptions, freightage, general liability and vehicles. In respect of legislation requirements, the Group purchases compulsory motor third party liability insurance and insurance of civil liability of organizations operating hazardous facilities. The Group also buys directors and officers liability insurance, civil liability insurance of the members of self-regulatory organizations, voluntary health insurance for employees of the Group. 14 RELATED PARTY TRANSACTIONS Related parties relationships are determined with reference to ASC No. 850, Related Party Disclosures. Balances as at and and transactions for the three months ended and March 31, 2013 with related parties of the Group consist of the following: (a) Sales to and purchases from related parties Sales Sales to related parties were $260,899 (including sales to NBH group companies of $259,306) and $2,858 for the three months ended and March 31, 2013, respectively. NBH group companies accounts receivable equaled $375,441 and $294,213 as at and, respectively. Accounts receivable and advances given to related parties for transportation services rendered by companies of Universal Cargo Logistics Holding group equaled $26,651 and $34,616 as at and, respectively. Accounts receivable from the other related parties equaled $2,953 and $2,158 as at and, respectively. Purchases Purchases from companies under common control (mostly transportation services rendered by companies of Universal Cargo Logistics Holding group) were $112,005 and $104,360 for the three months ended and March 31, 2013, respectively. Accounts payable to the related parties were $14,846 and $21,512 as at and, respectively. (b) Financial transactions Loans, issued to NBH group companies and accounted for under short-term and long-term investments, amounted to $254,390 and 185,595 as at and, respectively. Deposits and current accounts of the Group companies in banks under significant influence of the Group s controlling shareholder (OJSC Bank ZENIT and OJSC Lipetskcombank) amounted to $63,899 and $92,449 as at and, respectively. Related interest income from these deposits and current accounts for the three months ended and March 31, 2013 amounted to $716 and $805, respectively. (c) Financial guarantees issued and guarantees issued by the Group for borrowings of NBH group companies amounted to $788,311 and $790,618, respectively, which is the maximum potential amount of future payments. No amount has been accrued in these consolidated financial statements for the Group s obligation under these guarantees as the Group assesses probability of cash outflows, related to these guarantees, as low. 16

17 15 COMMITMENTS AND CONTINGENCIES (a) Anti-dumping investigations The Group s export trading activities are subject from time to time to compliance reviews of importers regulatory authorities. The Group s export sales were considered within several anti-dumping investigation frameworks. The Group takes steps to address negative effects of the current and potential anti-dumping investigations and participates in the settlement efforts coordinated through the Russian authorities. No provision arising from any possible agreements as a result of anti-dumping investigations has been made in the accompanying interim condensed consolidated financial statements. (b) Litigation The Group, in the ordinary course of business, is the subject of, or party to, various pending or threatened legal actions. The management of the Group believes that any ultimate liability resulting from these legal actions will not significantly affect its financial position or results of operations, and no amount has been accrued in the accompanying interim condensed consolidated financial statements. Initiated in January 2010 by the non-controlling shareholder of OJSC Maxi-Group court proceeding at the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation (hereinafter, ICA Court) regarding the enforcement of the additional payment by the Parent Company for the shares of OJSC Maxi-Group ended in January 2012 in favor to the Parent Company. Initiated in December 2012 by the non-controlling shareholder of OJSC Maxi-Group court proceeding at ICA Court regarding the loss of assets in connection with a share-purchase agreement ended in January Arbitrators stated that ICA Court lacks jurisdiction to adjudicate the claim of Maxi-Group s non-controlling shareholder against the Parent Company and terminated examinations. No further appeal is possible in these claims. Recently there are still few court proceedings initiated by the non-controlling shareholder of OJSC Maxi-Group going on in certain European courts and related to the claim filed to ICA Court in January In April 2014 the French court decided to execute a decision of the court of Russia (which was cancelled in Russia) on the territory of France. Group management is currently collecting arguments to appeal. The Group s management considers the probability of unfavorable outcome and cash outflow in connection with these court proceedings is low and accordingly, no accruals in relation to these claims were made in these interim condensed consolidated financial statements. (c) Environmental matters The enforcement of environmental regulation in the Russian Federation is evolving and the enforcement posture of government authorities is continually being reconsidered. The Group periodically evaluates its obligations under environmental regulations. As obligations are determined, they are recognized immediately. Potential liabilities, which might arise as a result of changes in existing regulations, civil litigation or legislation, cannot be reasonably estimated. In the current enforcement climate under existing legislation, management believes that the Group has met the Government s federal and regional requirements concerning environmental matters, therefore there are no significant liabilities for environmental damage or remediation. (d) Capital commitments Management estimates the outstanding agreements in connection with equipment supply and construction works amounted to $453,427 and $498,557 as at and, respectively. 17

18 15 COMMITMENTS AND CONTINGENCIES (continued) (e) Social commitments The Group makes contributions to mandatory and voluntary social programs. The Group s social assets, as well as local social programs, benefit the community at large and are not normally restricted to the Group s employees. The Group has transferred certain social operations and assets to local authorities, however, management expects that the Group will continue to fund certain social programs through the foreseeable future. These costs are recorded in the period they are incurred. (f) Tax contingencies Russian tax, currency and customs legislation is subject to varying interpretations and changes, which can occur frequently. Management s interpretation of such legislation as applied to the transactions and activity of the Group may be challenged by the relevant regional and federal authorities. Recent events within the Russian Federation suggest that the tax authorities may be taking a more assertive position in their interpretation of the legislation and assessments, and it is possible that transactions and activities, including certain operation of intercompany financing of Russian subsidiaries within the Group, that have not been challenged in the past may be challenged. As a result, significant additional taxes, penalties and interest may be assessed, and certain expenses used for profit tax calculation may be excluded from tax returns. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year of review. Under certain circumstances reviews may cover longer periods. Russian transfer pricing legislation was amended starting from January 1, The new transfer pricing rules appear to be more technically elaborate and, to a certain extent, better aligned with the international principles. The new legislation provides the possibility for tax authorities to make transfer pricing adjustments and impose additional tax liabilities in respect of controlled transactions (defined by applicable legislation), provided that the transaction price is not arm s length. Management exercises its judgment about whether or not the transfer pricing documentation that the entity has prepared, as required by the new legislation, provides sufficient evidence to support the Group s tax positions. Given that the practice of implementation of the new Russian transfer pricing rules has not yet developed, the impact of any challenge of the Group s transfer prices cannot be reliably estimated; however, it may be significant to the financial position and the results of the Group s operations., management believes that its interpretation of the relevant legislation is appropriate and the Group s tax, currency and customs positions will be sustained. 16 SUBSEQUENT EVENTS In April 2014, the Board of Directors of the Parent Company proposed dividends for the year ended of 0.67 Russian rubles per share in the total amount of Russian rubles of 4,015,462 thousand ($112,519 at the exchange rate as at ). The final amount of dividends is subject to the approval by an Annual General Stockholders Meeting. The Group s management has performed an evaluation of subsequent events and did not find any, except mentioned above, through the period from April 1, 2014 to May 19, 2014, which is the date when these interim condensed consolidated financial statements were available to be issued. 18